As health-care costs slow, IPAB’s launch is delayed

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BySarah Kliff

May 3, 2013

Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday afternoon for the latest edition, and read previous columns here.

With a mandate to drive down Medicare spending, the Independent Payment Advisory Board has always been among the health law's most-controversial provisions.

Legislators in both parties have attacked the board's power to dictate Medicare spending cuts without Congress' seal of approval. While IPAB is specifically barred from changing Medicare's benefits or increasing cost-sharing, critics worry that cutting doctors' payment rates could lead to worse care.

For now, IPAB doomsayers can rest assured: The cost-cutting board has been effectively neutered for 2015, the first year in which it's spending recommendations could go into effect. It has lost its power to make any of these binding cuts.

This isn't due to any great success of IPAB opponents. It's a relatively straightforward provision of the law.

When legislators created the Independent Payment Advisory Board, the whole idea was to rein in out-of-control cost growth in the Medicare program. In some years, Medicare costs have grown way faster than the rest of the economy, shooting upwards by as much as 18 percent in the early 1980s.

That was a lot faster than the price of other goods, as measured by the Consumer Price Index.

Lately, though, Medicare cost growth has been, perhaps surprisingly, pretty much under control. For the past two years, Medicare's per-enrollee spending has growth at nearly the exact same rate as other prices for other goods in the U.S. economy.

That means there's not much out of control spending in Medicare right now — which makes IPAB's cost-cutting mandate a less urgent priority.

When legislators drafted the Affordable Care Act, they recognized that a situation like this could occur, and that it wouldn't quite make sense to work on cost control when, by and large, costs were being controlled.

So, they set a trigger. The IPAB would only come into effect when Medicare's per-enrollee spending grew faster than the average of overall price growth (measured by the Consumer Price Index) and medical price growth. That way, Medicare costs wouldn't rise as quickly as the rest of the health-care sector, but also have some wiggle room to grow faster than the rest of the economy.

The law also set a deadline: By April 30, 2013, Medicare's chief actuary would need to determine whether the entitlement program would hit that trigger point. And, a few days ago, acting chief actuary Paul Spitalnic made his determination: Medicare cost growth would not be high enough to call the IPAB into action.

"Because the projected 5-year Medicare per capita growth rate does not exceed the Medicare per capita target growth rate, there is no applicable savings target for implementation year 2015," Spitalnic wrote in an April 30 letter to Marilyn Tavenner, acting Medicare administrator.

And that's the reason that, at least in its first year, the Independent Payment Advisory Board won't be doing much at all. And it's possible this could persist for a few years, as the the Center for Medicare and Medicaid Services projects relatively low growth in per-enrollee spending for the next few years (those projections should, however, be taken with a grain of salt — they assume that Congress does not shore up Medicare doctor payments, which they near certainly will).

This is how, for at least a year, IPAB ends: Not with repeal, but a small statutory provision.

KLIFF NOTES, OREGON EDITION: Top health policy reads from around the Web. This will be a special Oregon edition of Kliff Notes, which has pretty much dominated the health policy discussion this week. You can read my original write-up of the results here.

There's good and bad news for Medicaid in the Oregon study. "This is another piece of evidence. It shows that some things improved for people who got Medicaid. For others, changes weren’t statistically significant, which isn’t the same thing as certainty of no effect. For still others, the jury is still out. But it didn’t show that Medicaid harms people, or that the ACA is a failure, or that anything supporters of Medicaid have said is a lie." Aaron Carroll and Austin Frakt in the Incidental Economist. More Incidental Economist coverage here.

We learned that Medicaid works as health insurance. "A big criticism of Medicaid is that it pays doctors so little that it’s essentially worthless because no doctor will see you. But the Oregon residents who won the Medicaid lottery got much more health care — including preventive health care — than the residents who lost it. They also saw catastrophic health costs basically vanish."Ezra Klein in The Washington Post.

And we learned that, in two years of coverage, physical outcomes didn't change. "As the authors put it, 'Medicaid coverage had no significant effect on the prevalence or diagnosis of [high blood pressure] or high cholesterol levels or on the use of medication for these conditions. It increased the probability of a diagnosis of diabetes, but it had no significant effect on the prevalence of measured glycated hemoglobin levels.' " Avik Roy in Forbes.

The study's results ripple outside of Medicaid, to all health insurance products. "I think it makes more sense to read the study as an indictment of medical insurance broadly, rather than just one of Medicaid. If Medicaid is spending lots of money without clear improvements in physical health to show for it, isn’t it likely that much more expensive private insurance — which we can’t do a random-assignment study of — is doing the same?" Josh Barro in Bloomberg.

Now that we have the Oregon data, what do we do with it? "The key question here is how we should marginally revise our beliefs, or perhaps should have revised them all along (the results of this study are not actually so surprising, given other work on the efficacy of health insurance). For instance should we revise health care policy toward greater emphasis on catastrophic care, or how about toward public health measures, or maybe cash transfers? (I would say all three.) One might even use this study to revise our views on what should be included in the ACA mandate, yet I haven’t heard a peep on that topic. I am instead seeing a lot of efforts to distract our attention toward other questions." Tyler Cowen in Marginal Revolution.

Nearly everyone agrees: This is a really, really important study. "Health care experts put on their prettiest bonnets and their best silk aprons and began dancing around the maypole, singing "Oh frabjous day! Calloo! Callay! An actual RCT!" Then a bunch of very smart ones snapped into gear and started recruiting participants for a giant, gorgeous study. Ultimately they signed up about 6,400 of the 10,000 people who'd won the Oregon lottery, and a control group of about 5800 who had entered, but not managed to secure a Medicaid slot. America was getting its first large national trial to really test the question: how much does putting someone on Medicaid improve their health?" Megan McArdle in the Daily Beast.